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Memo: EU-South Korea Free Trade Agreement

Exports are an important source of growth and employment in the European economy supporting millions of jobs. European companies profit directly from exporting, and also from the positive spill-over effects in the internal market. Key Asian markets, such as South Korea offer the potential for significant new opportunities. European businesses have asked for better terms of access to key Asian markets. Responding to these calls, EU Member States authorised the Commission to negotiate new ambitious Free Trade Agreements (FTAs) with India, South Korea and ASEAN countries in April 2007.

The negotiations were launched in May 2007. After eight rounds of formal talks the two sides finalised the agreement in 2009.

Key elements of the EU-South Korea FTA

The FTA will create substantial new trade in goods and services. The additional market access provided by the FTA will further strengthen the position of EU suppliers in the Korean market. Some key features:

The FTA will quickly eliminate € 1.6 billion worth of Korean import duties annually for EU exporters of industrial and agricultural products. The EU will eliminate around € 1.1 billion of duties. For example, European machinery exporters will save € 450 million annually in duty payments. EU agricultural exporters will save € 380 million annually on duties for agricultural products for which Korean duties are currently relatively high. The EU will eliminate € 1.1 billion of duties on imports from South Korea.

More importantly, the deal will also tackle non-tariff barriers across all sectors including in industries of specific interest to the EU, such as automotive, pharmaceutical and consumer electronics. Under the FTA, South Korea will consider as equivalent many European standards, and recognise European certificates, thus eliminating red tape which so far was a deterrent and a barrier to trade.

The FTA will provide new opportunities in many services sectors, where the EU is highly competitive. These include telecommunications, environmental services, shipping, financial and legal services.

The FTA will offer transparency and predictability on regulatory issues such as the protection of intellectual property (including through strengthened enforcement); improved market access in government procurement; as well as a new approach on trade and sustainable development involving civil society in the monitoring of commitments.

The FTA will offer a high level of protection for EU Geographical indications such as Champagne, Prosciutto di Parma, Feta cheese, Rioja, Tokaji wine or Scotch whisky

Efficient dispute settlement rules will be set up to ensure enforceability of commitments (arbitration ruling within 120 days, which is faster than in the WTO).

The FTA will offer protection via a general safeguard clause. This would allow the re-establishment of duties for up to four years in case of a sudden surge in imports. A Regulation implementation this clause is currently being discussed by the European Parliament, the Council and the Commission. The Commission will monitor closely the evolution of the market in sensitive sectors.

On rules of origin, rules have been simplified and made more business friendly. At the same time, strict rules apply in sensitive sectors. For instance, for cars, the agreement would only moderately increase the levels of permissible foreign content from 40% to 45%. For textiles, agricultural and fisheries, the EU standard rules of origin will be maintained with only a small number of derogations applying. On duty drawback, the EU and South Korea maintain the right to refund duties on imports on parts, in accordance with WTO rules. However, a special clause on duty drawback has been included. After a 5 year transitional period, it will allow to introduce a cap of the refundable duties at a level of 5%, in case of a significant increase of sourcing from countries that have not concluded an FTA with South Korea.

The EU-South Korea trade relationship

South Korea’s strong economy (the 14th largest in the world) have made it our fourth most important trading partner outside Europe (behind the US, Japan and China). EU exports of goods to South Korea have averaged a yearly growth rate of 7.5% for the period 2004-2008. However, due to the financial crises, this trend slowed down in 2009 when the EU's exports to South Korea reached € 21.5 billion. In the same year, South Korea exported € 32.1 billion worth of goods to the EU. The value of EU services exports to South Korea in 2008 was close to € 8 billion, while EU absorbed € 4.4 billion of Korean services.